Message-ID: <2561055.1075856443680.JavaMail.evans@thyme> Date: Thu, 5 Apr 2001 02:02:00 -0700 (PDT) From: vince.kaminski@enron.com To: vkaminski@aol.com Subject: Asset Swaps vs CDS's Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Vince J Kaminski X-To: vkaminski@aol.com X-cc: X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_3\Notes Folders\Sent X-Origin: Kaminski-V X-FileName: vkamins.nsf ---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 04/05/2001 09:04 AM --------------------------- Bryan Seyfried 03/30/2001 10:08 AM To: Vince J Kaminski/HOU/ECT@ECT cc: Subject: Asset Swaps vs CDS's ---------------------- Forwarded by Bryan Seyfried/LON/ECT on 30/03/2001 17:12 --------------------------- Martin McDermott 23/03/2001 18:47 To: John Sherriff/LON/ECT@ECT, Bryan Seyfried/LON/ECT@ECT cc: Subject: Asset Swaps vs CDS's John, I haven't had much time to put something together on this issue. Fundamentally both instruments represent the same credit risk, i.e. same credit events and contingent payments, both represent senior unsecured credit risk. The differences in pricing therefore arise purely from supply and demand. One would expect generally that the asset swap would be lower than the CDS because of liquidity: there are only so many bonds out there, and so demand for Asset swaps is limited. I am attaching a one page note by JP morgan where they claim that one of the principal reasons for the CDS to be more expensive is people hedging convertible bonds by combining (1) a call option on the equity and (2) a CDS. If the call is cheap they will be willing to pay more for the CDS, driving the price up. I'll try to synthesize something more complete next week. Cheers Martin